Credit 101 with the KreditGuru, Gary Novel

Posted On: March 2012


Editor: Tiffany Brewington

What is a credit score?

A credit score is a number that summarizes the information continued in your credit report. The number reflects the likelihood of an individual becoming delinquent on a loan. The higher the number, the better. The most common scoring program was developed by The Fair Isaac Company (FICO).

What information goes into the calculation of a credit score?

Credit scoring programs use the information from three key areas of your credit report:

  1. 1) Account information (mortgages, credit cards, installment loans, etc.)
  2. 2) Public records (tax liens, civil judgments, bankruptcies)
  3. 3) Inquiries (requests from companies from an application of credit)

The scoring program looks at over 45 different items and uses a combination of everything on your report, to calculate a score. Information such as race, gender, where you live, salary and where you live are NOT used in the calculation of your score.

Why don’t I have a credit score?

You need to have open and active credit account that you have been making payments on for a minimum of 4 months. If you have very recent credit or no credit, you most likely will not have a score.

What range of numbers are used in the credit score?

In the real estate industry, the scores range from a low of 350, to a high of 840. The HIGHER the score, the BETTER the credit risk you are considered. The lower the score the HIGHER of a credit risk you are considered. 

If I have a low credit score, will I always have a low score?

NO! Credit habits can be changed and you can bring your scores up. However, you must pinpoint your problem(s) as to why your score is low, and then correct it.

What causes a low credit score?

The first and biggest thing to hurt your credit score is a recent late payment on an account. Missing ONE payment can drop your score 60-75 points or more depending on what the rest of your credit report looks like. Past due accounts and late payments have a huge impact on your scores. Accounts such as collections, charge offs, bankruptcy accounts, repossessions, and foreclosures, are all items that can ruin your score. The more recent the bad information is, the greater impact it has on your score.

Does a credit score indicate I have good credit?

No! The credit scores tells you how you handle your credit, manage your credit and repay your credit. Doing these three things correctly will guarantee you have a good score.

Will closing credit cards increase my score?

NO! NO! NO! I have heard this question a thousand times, and it is the biggest credit myth that is out there. Once a credit card appears on your report, the damage is done, and it is better to have it sit with a zero balance, using it every 5-6 months. When it comes to credit cards, the MORE credit you have available to use, and the LESS you use, the better it is for your score. Keeping balances of credit cards in use under 50% of the limit is ideal (unless you pay them off each month, which, of course is better).

How long do items stay on my credit report ?

  • Good accounts will remain on a credit report for 10 years from the date of last activity (DLA)
  • Bad accounts remain on for 7 years from the DLA.
  • Collection accounts stay on for 7 years since the account was charged off with the original creditor.
  • Tax Liens can stay on forever if not paid. They will drop off your report 7 years after it has been paid/released.
  • Civil Judgments stay on for 7 years from the filing date.
  • Chapter 7 Bankruptcy stays on for 10 years.
  • Chapter 13 Bankruptcy stays on for 7 years.
  • Foreclosures stay on for 7 years, but could come off sooner.

For all your credit-related questions, contact Gary Novel, President of Kreditguru, Inc at 630/624-9557 or

Posted On: March 2012

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